GBP/USD Slide Continues After UK Inflation Data. Is the Door Open for December BoE Rate Cut?

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GBP/USD has fallen around 60 pips since the UK inflation data release this morning. This could be down to the fact that traders added to BoE easing bets, seeing 17bps of cuts by December.

The inflation print has brought a December rate cut into play once more as the print comes after wage growth also showed signs of a slowdown last week. However, the BoE decision in December may now rest with the outcome of the UK Autumn budget due in November.

UK Inflation Data Opens Door to December Rate Cut

The most significant takeaway from the latest UK inflation data is the big drop in food inflation.

Officials and the Bank of England (BoE) had grown increasingly concerned throughout the year about rising food prices partly driven by April's tax and minimum wage hikes, fearing that this could fuel consumer expectations and turn the current spike into a more persistent inflation problem. Fortunately, food prices actually dropped in September, pulling the annual rate below 5% and running significantly below the BoE's August forecasts.

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Source: ING

A similar easing was seen in services inflation, which also dipped below projections, with various measures of "core services," including the closely-watched restaurants and cafés sector, showing a decline.

This is particularly reassuring because the BoE had worried that pressure from food inflation could eventually emerge as a slower-moving, more lasting problem in the catering sector, but its annual price rate also thankfully eased in September.

I initially predicted an interest rate cut in November, but because the Bank of England (BoE) has been cautious lately, I was forced to reevaluate my position. The market is now much more optimistic about a December cut, pricing a 72% chance of it happening.

A December cut is certainly possible, but it will depend on the specifics of the late-November Autumn Budget. Specifically, the Bank will need to see proof that the government plans to significantly tighten spending in 2026, mainly through tax increases, and that these new taxes won't accidentally cause inflation to rise again next year, as some tax hikes did recently.

US Dollar Resurgence and US CPI Ahead

The US dollar has been on a decent run this week with the Dollar index on course for a retest of the October 9 highs around the 99.57 handle.

This has also contributed to the recent fall in GBP/USD.

The question now as markets await the highly anticipated US Inflation print due on Friday is whether this is just repositioning ahead of the CPI release.

This could be the Dollar rising ahead of the CPI release before falling once the data is out. A very intriguing time for the US Dollar and one which could have wider implications for many currency pairs and asset classes.

Friday also brings a host of data from the UK. We have retail sales numbers and S&P PMI data scheduled for release which could impact GBP/USD.

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Technical Analysis - GBP/USD

From a technical point of view, GBP/USD on the four-hour chart has returned to a key area of support around the 1.3300 handle.

The current four-hour candle is showing signs of a potential move higher but does face some resistance ahead at the 1.3333 and 1.3378 handles respectively.

If cable rejects at any of these resistance levels, support at the 1.3250 comes into play before eyes turn to the psychological pivot level around the 1.3000 mark

GBP/USD Daily Chart, October 22, 2025

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Source:TradingView.com

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